[Choi Seokjin's Law & Biz] Key Q&A on the 'Yellow Envelope Act' Five Months Before Implementation (Part 1)

Diverse Interpretations on the Scope of the Amended Law
Disputes Unavoidable Even with Government Guidelines and Manuals
"Grant Autonomy to Subcontractors and Streamline the Subcontracting Structure"

Despite ongoing constitutional controversy and concerns from the business community, the implementation of the Yellow Envelope Act (amendments to Articles 2 and 3 of the Trade Union and Labor Relations Adjustment Act), which passed the National Assembly, is now five months away as of the article's publication date.

The amended law, which expands the definitions of "employer" and "labor dispute" and restricts claims for damages against labor unions (hereinafter referred to as unions), contains several practical issues that could become points of contention. These include: ▲the extent to which a principal contractor must respond to collective bargaining demands from multiple subcontractor unions; ▲the scope of business management decisions that may become the subject of industrial action; and ▲how the burden of proof will change in claims for damages arising from illegal strikes by unions.

The amended law does not delegate the details to be specified by an enforcement decree (Presidential Decree). Although the government is forming a task force to create specific manuals and guidelines, the Ministry of Employment and Labor’s guidelines do not have binding effect on the courts. As a result, until decisions are made by the Labor Relations Commission or the courts in specific cases, disputes are likely to continue, making it difficult for companies to adequately prepare for these risks.

Below is a summary of key questions raised at seminars hosted by law firms such as Lee & Ko, Bae, Kim & Lee, Kim & Chang, HwaWoo, and YK following the passage of the Yellow Envelope Act, along with the main points from their Q&A materials.

Expansion of the Employer Concept... Collective Bargaining Demands from Subcontractor Unions

The amended law includes within the scope of "employer" not only parties to an employment contract, but also those who have a substantial and specific ability to control or determine the working conditions of employees.

-What does it mean for a principal contractor to be recognized as the employer of subcontractor employees?

▲A principal contractor must engage in collective bargaining with subcontractor unions, and unfair labor practices against subcontractor unions are prohibited. Subcontractor unions may take industrial action against the principal contractor. However, the recognition of employer status is limited to individual and specific bargaining agendas where the principal contractor has substantial control. If such substantial control is recognized, employer status may also be acknowledged not only for employees of subsidiaries or affiliates, but also for second-tier subcontractor employees or employees of external parts suppliers who are not in-house subcontractors.

-Will the amendment to the Trade Union Act affect individual business owners who have entered into service contracts?

▲The amendment does not change the definition of "employee." Therefore, the scope of employees under the Trade Union Act should also remain unchanged. However, since the law is structured around the concepts of unions (composed of employees) and employers, the expanded definition of "employer" may also broaden the scope for establishing or forming unions, potentially increasing the range of employees covered by the law. For special-type workers, platform workers, and freelancers, if there is a counterpart company that exercises substantial control over specific matters, and since non-employees can now join unions under the amendment, companies may be required to respond to collective bargaining demands from such individuals.

-If a principal contractor refuses collective bargaining with a subcontractor union on the grounds of lacking substantial control over the bargaining agenda, does this constitute an unfair labor practice?

▲If, as in previous lower court rulings or Labor Relations Commission decisions, a court or the commission later determines that substantial control exists, there is a risk that this could be deemed an unfair labor practice. If the refusal to bargain was based on Ministry of Employment and Labor guidelines established before the law takes effect, "just cause" may be recognized, or "intent" for unfair labor practices may be denied. However, if a subcontractor union files a criminal complaint for unfair labor practices, there may be practical difficulties, such as the company representative being subject to investigation.

On August 25, at the seminar titled "Prospects and Responses in Labor-Management Relations After the Yellow Envelope Act" hosted by the law firm Bae, Kim & Lee, Sangmin Kim, head of the Human Resources and Labor Group at Bae, Kim & Lee (attorney), is presenting. Photo by Seokjin Choi, Law & Biz Specialist

-When a subcontractor union takes industrial action against the principal contractor, can the principal contractor assign its own employees or those of other subcontractors to perform the work?

▲The Trade Union Act prohibits the use of replacement workers who are not involved in the business during industrial action. Therefore, it is permissible to assign principal contractor employees who are involved in the business, but it is unclear whether employees of other subcontractors may be assigned. This could be considered a prohibited subcontracting arrangement under the law. Future interpretations by the courts and the Ministry of Employment and Labor will need to be monitored.

-How do the indicators of "substantial control" differ from those of "dispatch of workers"?

▲Factors such as subcontractor employees performing work through the principal contractor’s IT systems, following the principal contractor’s work plans, or being evaluated by the principal contractor overlap as assessment criteria for both concepts. However, key indicators for determining a dispatch relationship, such as "significant direction and supervision" (the principal contractor’s specific work instructions and supervision of subcontractor employees) or "actual integration into business operations" (joint work by principal and subcontractor employees), are not required for assessing substantial control. In conclusion, the criteria for determining substantial control are less stringent than those for a dispatch relationship. In fact, there have been lower court cases where illegal dispatch was not recognized, but substantial control by the principal contractor was acknowledged.

-Can a subcontractor union demand direct employment of subcontractor employees from the principal contractor through collective bargaining?

▲Until now, the Labor Relations Commission has been reluctant to recognize a duty for principal contractors to bargain over employment. However, with the new provision recognizing the principal contractor’s employer status and the inclusion of "employee status" and "disagreements over business management decisions" in the definition of labor disputes, it is unlikely that this stance will continue. In cases where illegal dispatch is at issue or the subcontractor has closed down, it is expected that subcontractor unions will be able to demand direct employment as a bargaining agenda with the principal contractor.

-When a subcontractor union demands collective bargaining from the principal contractor, should the bargaining representative system be unified at the subcontractor business unit level or at the principal contractor business unit level?

▲There have been Central Labor Relations Commission decisions stating that unification of the bargaining representative system at the subcontractor business unit level is sufficient. However, if bargaining units are set at the subcontractor level, this could place a significant burden on the principal contractor, and for those with many subcontractors, it may become practically impossible to fulfill bargaining obligations. As a result, there are arguments that unification should be based on the principal contractor’s business or workplace, or that the system should be abolished altogether under the amended law. The Ministry of Employment and Labor’s guidelines should be closely monitored.

Meanwhile, while the principal contractor is not required to include the subcontractor in collective bargaining with the subcontractor union, any collective agreement reached between the principal contractor and the subcontractor union does not have effect on the subcontractor. Therefore, if the bargaining agenda involves matters over which both the principal contractor and the subcontractor have joint authority, joint bargaining with the subcontractor will be necessary.

-If the principal contractor and the subcontractor union conclude a wage agreement, can union members claim wages directly from the principal contractor?

▲The amended law does not exclude the application of Article 33 of the Trade Union Act regarding the normative effect of collective agreements between the principal contractor and the subcontractor union. Therefore, under the wording of the law, direct wage claims are interpreted as possible.

-What should be considered when drafting contracts with partner companies?

▲While it is difficult to generalize, as a rule, contract terms that could be interpreted as placing the subcontractor in a subordinate position should be avoided. Provisions that allow the principal contractor to intervene in the subcontractor employees’ work, such as those relating to working hours, workload, or staffing, or those that imply joint use of systems or joint work, should be excluded as much as possible. It is also important to include provisions granting the subcontractor autonomy in personnel and labor management decisions. In the long term, it is advisable to reduce the number of subcontractors involved in contracts to streamline and simplify the structure of secondary and tertiary subcontracting arrangements.

This content was produced with the assistance of AI translation services.